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State Tax Changes 2026: What Changed in Each State This Year

Quick Answer: 2026 brings continued state income tax cuts — more than a dozen states have reduced income tax rates since 2021. Iowa, Georgia, Mississippi, and Arizona are implementing or completing transitions to flat income tax rates. Several states are adjusting property tax relief after COVID-era assessment surges. The federal TCJA individual provisions are set to expire at end of 2025 unless extended — watch for federal changes that affect state returns.

By Daniel, founder of CountryTaxCalc.com

Last Updated: April 2026

Key Facts

States with Income Tax Rate Cuts (recent)

Iowa, Georgia, Arizona, Mississippi, Indiana, North Carolina, Kentucky, among others

Iowa Flat Tax

3.8% flat rate from 2025 (down from up to 8.98% in 2021)

Georgia Flat Tax

5.39% in 2024; reducing annually toward 4.99% by 2029

Mississippi Flat Tax

4.7% in 2024; reducing to 4% by 2026

TCJA Federal Provisions

Set to expire December 31, 2025 unless extended — affects standard deductions, brackets, SALT cap

Property Tax Relief

Multiple states expanding homestead exemptions after rapid appreciation 2020–2024

State tax laws change every year — bracket adjustments, rate cuts, new exemptions, and revised property tax rules. 2026 continues the trend of state income tax reductions that began after COVID-era revenue surpluses. This guide covers the most important state tax changes effective in 2026, including income tax rate cuts, property tax relief programs, and changes to retirement income exemptions.

Income Tax Rate Changes: 2024–2026

The trend of state income tax cuts continued through 2024–2026:

States Moving to Flat Taxes

Iowa: Implemented a 3.8% flat income tax rate from January 2025 — down from graduated rates reaching 8.98% as recently as 2022. This is one of the sharpest income tax reductions in any major state in recent history. Iowa previously exempted pensions; now all income at 3.8%. Retirees with pension income should recalculate — the lower flat rate may result in less total tax even without the pension exclusion.
Georgia: Transitioning from a 5.75% top rate to a 5.49% flat rate (2024), then 5.39%, with annual reductions toward a target of 4.99% by 2029. Contingent on revenue thresholds being met.
Mississippi: Flat 4.7% rate (2024); reducing to 4.4% (2025) and 4% (2026). Mississippi also exempted most retirement income from income tax.
Arizona: Completed flat tax transition in 2023 — 2.5% flat rate on all income; one of the lowest flat rates in any state with income tax.

Ongoing Rate Reductions

North Carolina: 4.25% in 2025 (down from 4.5% in 2024; target of 3.99% by 2027)
Indiana: 3.0% (down from 3.15% in 2023; target of 2.9% by 2027)
Kentucky: 4.0% flat (down from 4.5% in 2022; potential further reductions)
Idaho: 5.8% flat (reduced from 6% in 2022)

Property Tax Law Changes

Rapid home value appreciation from 2020–2024 pushed property tax bills up dramatically in many states, triggering legislative responses:

Texas Property Tax Relief (2023, Effective 2024+)

Homestead exemption increased from $40,000 to $100,000 from school tax
3.5% cap on school district tax levy increases (was 2.5% for some districts)
$12.7 billion in property tax cuts signed in 2023 — largest in Texas history

Florida

Save Our Homes cap remains at 3% for homesteaded properties
Discussions of additional senior exemptions in 2026 legislative session

Colorado

After repeal of the Gallagher Amendment (2020), the legislature has set assessment ratios annually. 2024 legislation set residential assessment at 6.765% of actual value — maintaining relatively low effective rates despite Gallagher's elimination.
SB 233 (2023) caps residential property value growth at 10% per year for 2023–2024, providing additional short-term protection against rapid appreciation.

Georgia

Constitutional amendment passed in 2024: property values capped at 3% annual growth for existing homeowners (similar to California's Prop 13 concept). Takes effect if approved in referendum.

Montana

Property tax relief legislation in 2024 — rebates for Montana homeowners; income-based credits for renters

Retirement Income Tax Changes

Multiple states have modified retirement income taxation in recent years:

Iowa: Previously exempted pension income from income tax. New flat 3.8% rate applies to all income including pensions. However, at 3.8%, many retirees still pay less than before even on previously exempt income if they had substantial taxable income pushing them into the old higher brackets.
Missouri: Gradually eliminating income tax on Social Security benefits — full exclusion for taxpayers under $85,000 AGI (single) / $100,000 (married)
Nebraska: Full Social Security exemption phasing in: 60% exempt in 2022; 80% in 2023; 100% from 2025
Colorado: Increased the pension exclusion for seniors 65+; Social Security deduction fully available for taxpayers below income threshold
West Virginia: Social Security benefits fully exempt from WV income tax from 2024
Connecticut: Phasing out Social Security income tax; reduced to 75% included at lower income levels

Federal TCJA Expiration: State Implications

The Tax Cuts and Jobs Act (TCJA) individual provisions expire on December 31, 2025 — unless Congress extends them. Key provisions that expire:

Standard deduction: TCJA nearly doubled the standard deduction ($14,600 single in 2024). Expiration would reduce it to approximately $8,300–$8,500 (2017 levels adjusted for inflation). This would push millions of taxpayers back to itemising — including claiming the SALT deduction.
SALT cap ($10,000): Expires with TCJA. Expiration would allow unlimited SALT deductions — significant benefit for high-tax-state (CA, NY, NJ) residents who previously had state/local taxes well above $10,000.
Income tax brackets: TCJA widened brackets; expiration would compress them — increasing marginal rates for many middle-class earners despite lower headline marginal rates.
Child Tax Credit: TCJA enhanced CTC to $2,000 per child; expiration reduces it.
State conformity: Most state income taxes conform to federal definitions of income. TCJA changes affected state tax bases differently (many states decoupled from specific provisions). New federal legislation would again trigger state conformity decisions.

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Frequently Asked Questions

Q: Which states cut income taxes most recently?

Since 2021, over 20 states have cut income tax rates. Most significant: Iowa (8.98% top rate in 2021 → 3.8% flat in 2025 — a 57% reduction); Georgia (5.75% → flat 5.49% en route to 4.99%); Arizona (completed flat tax at 2.5% in 2023); Mississippi (reducing to 4% flat by 2026); North Carolina (reducing toward 3.99%). This wave of state income tax cuts was fuelled by COVID-era revenue surpluses and political consensus that lower taxes attract residents and businesses. States that cut rates most aggressively are generally in the South and Midwest.

Q: What happens if the TCJA expires at end of 2025?

If TCJA provisions are not extended (or made permanent), starting January 2026: standard deductions decrease significantly; income tax brackets become narrower (increasing effective rates for many); the SALT cap lifts (benefitting high-tax-state residents); Child Tax Credit reduces to $1,000 per child; estate tax exemption reverts to approximately $6–7M (from $13.6M). As of April 2026, Congress is actively debating extension or modification of TCJA provisions — many are likely to be extended. Monitor IRS.gov for announcements and use our calculator once any changes are enacted.

Q: Did any states raise income taxes in 2024–2026?

While the trend is clearly toward rate cuts, some states raised taxes or introduced new levies: Minnesota increased the top income tax rate to 10.85% (from 9.85%) in 2023 for income above $1M single / $2M married. Massachusetts introduced a 4% surtax on income above $1M (the 'Fair Share Amendment') effective 2023 — bringing MA's top rate to 9% on high earners. California has periodically considered extending or increasing the 13.3% surtax (currently set to expire when COVID budget was paid off). Washington State introduced its 7% capital gains tax (2022, upheld 2023). The general direction is toward lower rates in Republican-controlled states and maintained or higher rates in Democratic-controlled states.

Disclaimer: This guide provides general information about state tax changes for educational purposes. Tax laws change continuously. Some changes described may be pending implementation or subject to legislative modification. Always verify current rules with your state's department of revenue. This is not tax advice.